Understanding Processor and Gateway Rates: How Volume Impacts Your Payment Costs

Dec 23

When it comes to accepting payments, the fees charged by processors and gateways can vary widely. These rates are not a one-size-fits-all structure; they depend on your transaction volume, industry type, and the agreements you’ve negotiated. For businesses looking to optimize their payment costs, understanding how rates are structured is crucial.

In this blog, we’ll break down the different types of rates charged by processors and gateways, explain how processing volume impacts your rates, and provide insights into how businesses can secure the best deals.

1. Types of Rates in Payment Processing

Payment processors and gateways charge fees for facilitating transactions. These fees generally fall into three categories:

1. Transactional Fees

Interchange Fees: Charged by card networks like Visa and Mastercard and passed to the issuing bank. These fees vary by card type (e.g., debit vs. rewards cards), transaction type (in-person vs. online), and industry.
Processor Markups: Additional charges applied by the processor on top of interchange fees. These can vary significantly depending on the pricing model.

2. Flat Fees

Monthly Fees: Some processors charge flat fees for account maintenance or access to specific features, such as fraud detection tools.
Gateway Fees: For online transactions, gateways charge a monthly fee to connect merchants to processors.

3. Incident-Based Fees

Chargeback Fees: A fixed amount charged for managing a disputed transaction.
Batch Fees: Fees for closing out and submitting transactions at the end of the day.
Non-Compliance Fees: Penalties for failing to meet PCI compliance requirements.

2. How Pricing Models Affect Rates

Payment processors typically offer three main pricing models, each with its own cost structure:

1. Interchange-Plus Pricing

What It Is: The processor passes the interchange fee directly to the merchant and adds a transparent markup.
Who It’s Best For: High-volume businesses or those seeking cost transparency.
Advantages: Easy to identify and minimize hidden fees.
Challenges: Requires active management to optimize interchange rates.

2. Tiered Pricing

What It Is: Transactions are categorized into tiers (e.g., qualified, mid-qualified, and non-qualified) based on factors like card type and transaction method.
Who It’s Best For: Smaller businesses seeking simplicity.
Advantages: Straightforward but often expensive for certain card types.
Challenges: Hidden fees and higher rates for non-qualified transactions.

3. Flat-Rate Pricing

What It Is: Merchants pay a fixed percentage per transaction, regardless of card type or transaction method.
Who It’s Best For: Small businesses with low transaction volumes.
Advantages: Predictable and easy to manage.
Challenges: Often more expensive for larger businesses.

3. How Processing Volume Impacts Rates

Payment processors and gateways often adjust their rates based on your monthly or annual transaction volume:

1. Low-Volume Merchants

Typically charged higher rates due to lower transaction frequency.
May rely on flat-rate pricing for simplicity.

2. Mid-Volume Merchants

Can access interchange-plus or tiered pricing models.
Often qualify for slightly lower processor markups.

3. High-Volume Merchants

Enjoy lower interchange rates and reduced processor markups.
Often negotiate custom pricing contracts with processors.
May gain access to dedicated account managers and advanced reporting tools.

4. The Role of Gateways in Pricing

Gateways, which connect merchants to payment processors, also contribute to your overall costs:

1. Gateway Fees

Typically charge a monthly fee (e.g., $10–$50) and per-transaction fees (e.g., $0.05–$0.15).
Offer additional features like fraud detection or recurring billing for extra charges.

2. Volume Discounts

Similar to processors, gateways may offer lower fees to high-volume businesses.

3. Integration Costs

Some gateways charge setup fees or integration costs for connecting to specific platforms (e.g., e-commerce or POS systems).

5. Tips to Minimize Payment Costs

1. Optimize Interchange Rates

Use Level 2 or Level 3 data submission for B2B transactions to qualify for lower interchange rates.
Ensure transactions are processed through the right MCC (Merchant Category Code).

2. Negotiate Processor Markups

Compare quotes from multiple processors and use your transaction volume as leverage.

3. Consolidate Gateway and Processor

Work with a provider that offers both gateway and processor services to reduce redundancy and fees.

4. Monitor Monthly Statements

Regularly review statements to catch hidden fees and identify cost-saving opportunities.

5. Partner with a Payment Consultant

Experts like PlutosPay can analyze your payment setup, identify inefficiencies, and negotiate better rates.

6. How PlutosPay Helps Businesses Optimize Rates

At PlutosPay, we specialize in helping businesses navigate the complexities of processor and gateway fees. Here’s how we support you:

Rate Negotiation: We negotiate lower processor markups and gateway fees on your behalf.
Interchange Optimization: Our team ensures you qualify for the lowest possible interchange rates.
Custom Solutions: We design payment setups tailored to your transaction volume and business needs.
Fee Audits: We review your statements to uncover hidden fees and implement cost-saving strategies.

Conclusion: Take Control of Your Payment Costs

Understanding processor and gateway rates—and how they’re influenced by your transaction volume—is key to reducing costs and maximizing profitability. Whether you’re a small business looking for simplicity or a high-volume merchant seeking the best deals, optimizing your payment setup is essential.

At PlutosPay, we’re here to help you navigate the complexities of payment processing, uncover hidden savings, and secure the best rates for your business. Contact us today for a free consultation and see how we can transform your payment operations.

Akash Patel